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Smart Homes Have Advantages, But Are They a Smart Investment?

Twenty five years ago, cutting-edge home technologies amounted to a home security system controlled by a wall-mounted keypad, a manual thermostat, and maybe a dial-up connection for that new Internet thingy.

Things have certainly changed.

Today, “smart home” automation aligns innovation with home ownership to create centralized, efficient platforms for operating the various systems within a household.

Specifically, smart homes have technologies in place that can coordinate the operation of appliances, lighting, heating and air conditioning, computers, entertainment systems, camera systems and home security. All of which are capable of communicating with one another and being controlled remotely via hand-held device from anywhere in the house, or anywhere in the world for that matter.

Just think, we now can now turn off all the lights in the house from the comfort of our bedroom, check on our homes when we are at work, and even close the garage door from halfway around the world – all with a few swipes on our smartphones.

And in addition to the convenience and ability to customize these solutions, smart homes have key advantages - namely energy savings. And some homeowners take it a step further, incorporating more-advanced technologies like electric cars, solar power and sprinkler systems that maximize energy efficiencies, minimize carbon footprints and can save thousands of dollars over time.

According to Barclays, consumers that convert to a smart home with a fully electric vehicle replacing a conventional vehicle would save homeowners 46.6 percent on their annual energy bills.

At the same time, smart homes do present some challenges.

For starters, homes must have a reliable Internet connection. Sketchy Internet service causes big problems for homes that rely on automation. And along the lines of Internet problems, smart homes are vulnerable to criminal hackers who can monitor a home’s operational patterns, determine when homeowners are away, and break into the property knowing that no one is expected to return anytime soon.

Further these systems can be expensive, and learning how to use them could pose challenges for older users who aren’t as tech-savvy as younger generations.

So, with all of these factors in mind, how do smart homes stack up as real estate investments for Millennials and the generations that follow?

At this point, it’s too early to tell. But as younger, tech-savvy Americans recognize the value in smart, energy-efficient homes, it’s likely they will be willing to pay more up front for a home to realize energy savings over time.

That said, however, residential real estate prices have been growing at a solid clip, with annualized average returns of about 10 percent over the past 20 years. And with home-price gains steadily outpacing wage growth, more and more potential buyers are getting priced out of the market. A smart home, therefore, might have a certain “wow” factor that prospective homebuyers are attracted to – which might help the home sell quicker - but in today’s sky-high market, realtors are indicating that smart technologies have little effect on home prices right now since the market is already pricey.

Further, just as many of us thought music couldn’t get more technologically-advanced than the compact disc player and the Internet had reached its heyday sometime in the 1990s, even today’s smart-home technologies will eventually be obsolete. In fact, with technology advancing so rapidly, cutting-edge, smart-home products are likely to be somewhat antiquated within five years as the next round of innovation enters the marketplace.

As smart homes become more prevalent in the digital age, it should come as no surprise that consumers are attracted to these technologies because of their convenience and cost efficiency. While it’s still too early to see exactly how these innovations will affect home values going forward, one thing is for sure: smart home technologies are here to stay.

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